Oregon made the national news. PERS isn't just a calamity. It is an embarrassment.
What can an Oregon Democrat do?
The New York Times ran a feature story about Oregon PERS. The story focused on Southern Oregon: Klamath Falls and Josephine County.
Cities cannot afford to maintain bridges. Schools cannot afford teachers. PERS is big problem and we aren't facing up to it.
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| Click: New York Times article |
The Oregon Public Employees Retirement System shares something in common with most other jurisdictions. It is underfunded.
Oregon has a calculated shortfall of $25.3 billion dollars (based on current assumptions of a 7.2% return on the investment portfolio) and that means we are better funded than most states, at 81% of what we need, compared to a national average of 66%, according to a Pew study.
But Oregon is special, with some features that make PERS politically toxic: payouts to high-visibility beneficiaries who take advantage of a unique payout formula. PERS rules allowed the millions of dollars in side income earned by former Oregon football coach Mike Bellotti to be included in his salary for PERS purposes, and he had a long career with the football program. Many years, multiplied by that enhanced final income, gets him $46,000 a month.
Oregon has a calculated shortfall of $25.3 billion dollars (based on current assumptions of a 7.2% return on the investment portfolio) and that means we are better funded than most states, at 81% of what we need, compared to a national average of 66%, according to a Pew study.
But Oregon is special, with some features that make PERS politically toxic: payouts to high-visibility beneficiaries who take advantage of a unique payout formula. PERS rules allowed the millions of dollars in side income earned by former Oregon football coach Mike Bellotti to be included in his salary for PERS purposes, and he had a long career with the football program. Many years, multiplied by that enhanced final income, gets him $46,000 a month.
Then it got worse. Two doctors, whose side income at Oregon Health Sciences entered their calculations, created the pension shown in the NY Times cover: $76,000 a month, for life.
The status quo has its defenders. Some of the provisions were contracted for, making them a property right of the beneficiary and the US Constitution specifically forbids governments to take private property for public use without "just compensation." An employee's pension is their property, just as would be their bank accounts or homes. But some of the rules regarding the pension allocation formulas may be open to the public will, i.e. politics.
Whatever the legislature does will get tested in the courts.
Oregon's public employee unions are steadfast in opposing anything which would hurt current beneficiaries, and public employee unions are routinely essential in the election of Democratic candidates to the legislature and statewide offices.
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| Jessica Gomez, Republican Candidate |
Political newcomer Jessica Gomez, a Republican candidate for the Medford-Ashland State Senate District, has posted specific proposals to help fix the problem. They may not get passed. They almost certainly will be opposed by public employee unions, and therefore many and perhaps all the Democrats in the legislature. However, they deserve consideration and Gomez deserves recognition for actually making serious proposals she posts under her own name.
As I understand them, they can be summarized this way:
Proposal #1. A voluntary option of a one-time cash disbursement to current beneficiaries in lieu of monthly payments, to be funded with Oregon's bond capacity. The interest costs to taxpayers for the tax free bonds would be lower than the rate earned by PERS investments. It would be taking advantage of the arbitrage between taxable and tax free bonds. It might be attractive to beneficiaries wanting flexibility and it would save the state money. This would help make up the overall shortfall in funding.
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| Click Here: Gomez's PERS proposal. |
Proposal #2. Change details of the formula. Get rid of the conflict of interest of judges and elected officials by putting them into a 401k program instead of PERS. Stop the use of sick and vacation time artificially to raise the final year income, and make the benefit based on the final ten years, not the current three years. Cap the income eligible for pensions to $100,000 a year. Change the rate of annuitization of payouts from the artificial and unrealistic 7.2% down to the actual market rate, currently about 3.5%.
Are these reasonable? It would be good to have a debate on their merits. I know from my long career as a Financial Advisor that the assumption for return on investments during the payout phase is far greater than any offered in the private marketplace. Also, the practice of "spiking" (i.e. artificially creating a high final year's income in order to game the formula for the pension payout) means that money set aside over a long career is inadequate to fund a pension based on an unexpectedly high calculation gamed by that last year. Spiking is a bi-partisan practice of giving politically convenient thank-you gifts to politicians and employees. I wrote about it last month: Click: Gaming the PERS system
Would her proposals be popular with the public? I suspect very popular. Voters--other than Tier One PERS employees and their families--widely consider the pension results to be very generous, and in the case of the highest paid recipients, obscene. Local media has covered what the New York Times covered. People realize we have a problem.
Would her proposals be popular with the public? I suspect very popular. Voters--other than Tier One PERS employees and their families--widely consider the pension results to be very generous, and in the case of the highest paid recipients, obscene. Local media has covered what the New York Times covered. People realize we have a problem.
A Republican candidate can do what a Democratic candidate may not want--or dare--to do. Public employee unions can influence general elections, but their involvement can be dispositive in Democratic primaries. Public employee unions have money and campaign volunteers to mobilize.
The State of Oregon established PERS and its rules in a bipartisan manner, but the PERS problem now has a partisan skew. Republican legislators and voters "support education" but many work in opposition to PERS. Democratic legislators "support education" but education is defined as support for policies advanced by employee unions, not by students and parents.
This proposal was politically easier for Gomez to put forward than it would be for a Democrat. Still, PERS is a huge problem for Oregon, and Gomez has put something on the table. Her raising this issue may force Democrats to take a position. It may flush out some differences among the candidates, both in policy and where they expect to get political support in the upcoming primary. In any case, perhaps the public will get a worthwhile airing of the subject.
[Note: I have asked for comments from all the candidates, and will be reporting them in detail in subsequent posts. As of this morning, Kevin Stine has made a substantial response, observing that he thought proposal #1 to be workable and #2 to be likely legally impossible. Curt Ankerberg responded with emails saying that Gomez's plan is deeply flawed, except for the portions that were plagiarized from him, that Gomez lacks the ability to do serious proposals on her own, and that I must have been paid off by Alan or Sid DeBoer to have written this post.]
The State of Oregon established PERS and its rules in a bipartisan manner, but the PERS problem now has a partisan skew. Republican legislators and voters "support education" but many work in opposition to PERS. Democratic legislators "support education" but education is defined as support for policies advanced by employee unions, not by students and parents.
This proposal was politically easier for Gomez to put forward than it would be for a Democrat. Still, PERS is a huge problem for Oregon, and Gomez has put something on the table. Her raising this issue may force Democrats to take a position. It may flush out some differences among the candidates, both in policy and where they expect to get political support in the upcoming primary. In any case, perhaps the public will get a worthwhile airing of the subject.
[Note: I have asked for comments from all the candidates, and will be reporting them in detail in subsequent posts. As of this morning, Kevin Stine has made a substantial response, observing that he thought proposal #1 to be workable and #2 to be likely legally impossible. Curt Ankerberg responded with emails saying that Gomez's plan is deeply flawed, except for the portions that were plagiarized from him, that Gomez lacks the ability to do serious proposals on her own, and that I must have been paid off by Alan or Sid DeBoer to have written this post.]
2 comments:
Well stated!
It looks like no one is accountable for this problem. It looks like it needs some housecleaning and a new funding formula that's wedded to reality. It looks like it needs leadership willing to face the past mistakes, damn the consequences.
A visit to the PERS website would have you believe all is well...
From what I've learned it looks like the whole thing was botched. It may be best to scrap it and start over. Otherwise the only solution is to tax to fund the shortfall. Horrors!
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